Identifying potential investors is one of the most difficult challenges facing early-stage companies. The range of amounts sought at this stage is typically greater than what could be provided by the founders and friends and family, but below what would attract a VC or a registered broker-dealer. The problem is even more acute in geographic
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Out of Control! What the Elon Musk Compensation Case Reminds Us about Transactions with Controlling Stockholders
Process still matters. That’s the main takeaway from the Delaware Court of Chancery’s 200-page opinion striking down Tesla’s 2018 incentive package awarded to Elon Musk. The court rescinded the incentive package mainly because Musk was found to control Tesla and the process, the directors authorizing the package were not independent and the stockholder vote approving…
Corporate Transparency Act Risks for Startups and Venture-Backed Companies
Starting January 1, 2024, virtually all private companies will be required to report information about their beneficial owners to the Treasury Department’s Financial Crimes Enforcement Network “FinCEN”) under the Corporate Transparency Act (the “CTA”). But the CTA presents unique analytical and reporting challenges for startups and venture backed companies because of the special economic and…
SEC’s First Two NFT Enforcement Actions Cast Shadow of Ambiguity
The Securities and Exchange Commission recently brought its first two enforcement actions against issuers of non-fungible tokens (NFTs), resulting in cease-and-desist orders, penalties and other remedies, finding that the NFTs were investment contracts and that each of the issuers had engaged in an offering of securities without registration in violation of Section 5 of the…
Parting the Crypto Sea: Ripple’s XRP Ruled to be a Security When Sold to Private Investors, But Not When Sold on an Exchange
Judge Analisa Torres’ greatly anticipated Order in the SEC’s lawsuit against Ripple is a split decision. The Order basically finds that Ripple’s digital token XRP is a security when sold privately to individuals and institutional investors pursuant to purchase agreements, but is not a security when sold on a digital asset exchange where sellers don’t…
Revenue Participation Rights as a Crowdfunding Instrument Alternative
The anti-child trafficking thriller “Sound of Freedom” just opened in theatres on July 4th. Based on a true story, it stars Jim Caviezal as former Homeland Security special agent Tim Ballard who quits his job with the agency and embarks on a mission to rescue children from traffickers in Latin America. Another true story relating…
Too Big to Waive? Enforceability of Drag-Along Covenants Not-to-Sue
In the world of venture capital, there are certain investor rights that ensure the smooth execution of exit transactions. The primary such mechanism is the drag-along provision, under which one group of stockholders agrees in advance to sell or vote their shares in a sale of the company approved by another group of stockholders and/or…
Proposed Reform of Venture Capital Fund Advisor Exemption Will Boost Startup Investment and Founder Liquidity
A major theme of this Blog has always been ongoing legislative, regulatory and market initiatives to reform capital markets by targeting unreasonable or outdated impediments to capital formation to make it easier for early-stage companies to raise capital. These impediments are not always obvious or direct. One such indirect impediment has been the venture capital…
Bumpy Ride Ahead for Startups After Silicon Valley Bank Crash
The collapse of Silicon Valley Bank will have enormous repercussions for startups and VCs in ways seen and unseen. As for the unseen, SVB had deep relationships among the various players in the venture ecosystem. Founders and investors established banking relationships with SVB in part because of the opportunities SVB provided to network within the…
Middle Market M&A Brokers Get Relief
A new federal law goes into effect March 29, 2023 that conditionally exempts from broker-dealer registration persons who solely intermediate small, private company M&A deals. Persons who intermediate larger private company M&A transactions will not be eligible for the new exemption and will need to continue to rely on the SEC’s 2014 no-action letter. The…